As in the story of the Emperor's Suit, certain money managers follow the flow just to pretend they are surfing on top of the latest and most profitable financial wave. Not only did they ignore where the money was invested; they were ashamed to ask!

Is there something missing in all this chatter? Though Ponziesque, does it strike you, good reader, pure of heart & soul, that Madoff’s business model might have included a money laundering component? Look at it through the eyes of the less pure: You, naughty naughty, have certain second economy billions on hand about which the government will get nasty were you to spend openly. What better fool to fix that than the mysterious financial genius of the highest social standing Madoff?

It is impossible that one man did all this. I hope that the regulators will look in the right places and find out who was behind this. There must be other hidden hands and they must be found. Otherwise five years from another Madodff will be born

Let the greedy and imprudent bunch suffer. Most of these Ivy league money managers and financial elite simply dont have a clue of the risks they are exposed to, which is mind boggeling to say the least.
all the bankers' bonuses should be recouped and made a part of TARP funds after all, since we (tax payers)were never driving the car drunk, why should we pay the fine.

Warren Buffet added to his famous saying:

'you only know who is swimming naked when tide goes down' well when the tide went this time, we found out that Wall Street was swimming completly naked.

There is one thing people don't realize when it comes to investment companies. Even in a good economy, banks pay 3 to 5 percent interest, a CD maybe 5 percent, and industry has around 1 percent growth. So how do these investment companies pay 10 percent return? They obviously cannot invest in industry (not an long-term), or put the money simply in some large bank. This is how:

EVERY large-scale investment strategy is a Ponzi-scheme.

and two:

There is nothing wrong with Ponzi schemes.

Every investment firm generate their return by hiring people who have either exceptional people skill or solid contacts to money. All that "complicated calculations" and "complex derivatives" are just smoke screen. You as an investor invest in fact in the ABILITY of these people that they can bring in always more people to invest. That is all. Naturally, its a big advantage to be an early investor in a SUCCESSFUL investment company. (Whereby you take the risk however that the company fails in the first year). Those who invest last, are bound to lose their money. But the thing is, that early investors DO GET their 10-15 percent return as they should. They took the real risk.

Guy Foxx
Not a failure of capitalism at all. Capitalism is an exchange of goods and/or services of mutually agreed value. Nothing of value was rendered by Madoff. This is theft. We must look also at his co-conspirators, the S.E.C., who allowed this scam to occur in the first place. If you wanted to buy your daughter a pony, wouldn't you also want me to show you the pony was, in fact, alive? The S.E.C. couldn't tell you how long it would live, but they could damn well check to see if it was breathing.
I'm not sure on this, but I think the stockyard auctions must have a "live animals only" rule.
This is why some serious jumpsuit time is in order for all the malefactors on Wall St. and their "loan specialist" helpmates both inside and outside of Govt. It wont put Humpty-Dumpty back together again, but it might show the rest of the world we are doing something to restore some semblence of law to our financial markets.
Free market capitalism can restore us, but only if the rule of law is enforced to keep hucksters from selling poop as pudding.

Madoff is not close to be the biggest Ponzi scheme ever. I am surprised not to see mentioned what stands to be the biggest Ponzi scheme ever, which amounts to trillions and trillions of dollars across developed economies. It is affecting upper, middle and lower classes alike. It is called residential property. Its uncovering is unduly called credit crunch.

I'm amazed that fund managers who were considered "smart" enough to handle millions of dollars could not be bothered to look into how these great returns were generated. "Very secret," says Mr. Madoff, "but if you just sign here I might be able to get you in under the wire." These guys apparently have bought a used car without taking it for a test drive, only to find no engine in the car.

Interesting how the money game can promote greed amongst the so-called intelligent people & mega-institutions.......another symbol of the failure of capitalism......Madoff could just be a blessing in disguise....!!!

It is obvious that there were several complaints about Madoff to the SEC. It is obvious that there were several warning signs to investors. It is obvious that NONE of the sscammed did any due diligence. It appears obvious that the SEC messed up BIG TIME. (I think it will eventually come out that the SEC staff was "indirectly involved" in this fraud. No one person can run such a huge involved fraud alone or without accomplises. The only question is who helped?

So the regulators and bureaucrats have brought us another result of their efforts. The sub-prime/derivitive mess was not enough. They had to add another.

Wonder how many more will be revealed with the great de-leveraging? Warren Buffett was correct when he said derivitives will be weapons of mass financial destruction several years ago.

The sad thing is too many people are relying on the politicians, regulators and bureaucrats thatbrought us these things to fix them. SICK!

The Japanese have learned after 20 years of "spending" by the "government" that they still have an economy in the tank. (But they have lots of bridges to nowhere and everything paved with concrete etc)

You can fool all the people all of the time after all!
This is Madoff's best teaching legacy to the rest of commoners and non-commoners alike as his scheme finally collapses due to the unfortunate convergence of a set of negative circumstances at the same point in time.
The nagging question is whether this is down to the cunning genius of a single individual who managed to dodge every knowledgeable insider with his financial services mastery or if many simply kept knowingly quiet while the going was good.
There's always scope for theories and abstract possibilities, the hard fact being the system must be considerably rotten to not detect and correct timely such devious entreprises.Now that it has come to a shattering end due to 'unforeseen factors' it somehow looks simple to flashback asking questions and finding respective answers with relative ease but always missing the core issue.
I can only feel sorry for the small investor who joined in fully trusting and blissfully unaware of shadowy aspects of the inner workings of full-blown capitalism that knows no bounds.Rather, those who should bound it and get paid to do so, to ensure that very freedom moneywise have over the years given up on their primary duties contributing decisively to the free-for-all the system has become.
US$50bn is the combined yearly output of several countries put together, just a trifle really...
Could there be more Bernard Madoffs around?

Madoff made it to the Economist Leaders! Yes if any one is the leader of the Ponzi Scheme Industry in private sector, it's Madoff. He ran the most successful, biggest finest ever, private Madoff-Ponzi operation smooth seamlessly for 20 years without much difficulty.. What's admirable and genius about Madoff is that he has impeccable clean classic "good" taste when picking his fools. He did not get himself be tangled up with big dirty vulgar money. He seemed only getting involved with the big money that is sissy, cowardice, elite, eager to get insider connection, greed but want to be unseen, quiet instead of loud, greed but pass on as the noble charities, and moneys that are slightly vulgar dirty but wanna be see as classy, Madoff's sheep are qualities and foreign, gentlemanly and exclusive, well mannered prettily behaved rich, self acknowledged High Moral ground but in fact they are bunch of hypocrite in fine form. They are smart worldly well educated refined foreign bankers money managers who are eager to be the relations of the mature and the best Wall Street insider. They are big shot rich celebrated Hollywood celebrities and celebrities are well known for their outrages ability to manage their celebrated large sums of money, The are the exclusive Charities that appeared seemingly as high on the self claimed high moral grounded as their high desire of increasing their fortune by some obscured means and therefore it make them look highly hypocritical. They are the old respected politicians who are all for the more power the more money the better by hood or by crook as long as they are not be caught red handed. In summery, should you plan out to Ponzi, better target the big money. Better find some "Nice People" to Ponzi on. But most importantly, in order to be a very success Ponzi Master, you must first of all, Madoff -ily polish yourself with the Madoff cunning.

$50 billion - FIFTY BILLION DOLLARS!! Stolen!It is beyond mind blowing that this could happen at all and the fact that the scheme was operating for many years without any hindrance is all the more shocking.Of course the question everyone is asking is what does this mean about the many other hedge funds and private equity groups that have been able to operate for many years with almost zero oversight? Given the extreme levels of corruption we are seeing revealed, no one will be surprised if there are more Madoffs around.Since the financial crisis started the government has been working to try to stave off a complete economic collapse. There has been no real effort to try to restore CONFIDENCE, and because of this complete lack of CONFIDENCE everything continues to decline. It is time to take some real, direct action. I would suggest the following:1) Anyone considered possibly culpable in any of the many constituent parts of this financial crisis should be off to jail to await trial - Gitmo style. No bail. Madoff has ripped off the equivalent of several times the budget of the State of California, affecting millions of people in the process. He should be in jail awaiting trial, not sitting comfortably at home. The people who do this stuff have to start realising that there are real and very severe consequences for their actions.2) Similar to Sarbanes, the government should immediately pass an emergency law compelling any and all directors/officers of any investment businesses in the country to formally attest to the fact that this sort of thing is not happening in their businesses. A failure to comply or subsequently revealed untruths should carry extraordinarily heavy automatic, mandatory penalties - huge fines, very long prison terms without parole, very limited routes to appeal.We have to restore CONFIDENCE in the system - a mass of new regulation won't achieve that on its own. Badly thought out regulation may make things worse. We are living in extraordinary times- millions of people are losing their jobs and their homes. As their paltry payouts and unemployment benefits run out, more and more will be on the street starving.Such extraordinary times demand extraordinary measures. The Congress must act quickly to restore CONFIDENCE with the strongest possible measures. These measures must be applied rigorously to everyone involved and not just a few sacrificial lambs, whatever the position and connections of these disgusting people.Right now we are doing per one of Churchill's most famous quotes "America will always do the right thing once its exhausted all other alternatives" as everything collapses around us. If our leaders continue to "fiddle while Rome burns" the consequences will be even more severe.

I agree: it is time to redefine the notion of the qualified investor. Rich people are just as stupid as 'the rest of us'. The investment restrictions exist only to make rich people think they can buy something "better" than what the rest of us can buy.I bet 90% of Wall Street has read this story with ENVY. It is not a cautionary tale. It is a how-to manual.

Quite a scam that Mr. Madoff put up there. But let's ask a question about the bigger context: Where is the difference between his Ponzi scheme and the fiscal and financial policies of Messiers Bush and Greenspan? Mr. Poulson tried to avert the financial meltdown with a fire hose blowing $700 Billion that simply kept his old colleagues on Wall Street alive, which happened to be the lowest floor in that biggest pyramid of all. While the general economy will continue to be stuck in deep freeze conditions for months to come, and the general public has to foot the bill. Tighten your belts folks.

Let's cut to the chase - due diligence is tedious & people who failed to do so were simply lazy. Nothing new about lust, gluttony, greed, sloth, wrath, envy and pride. The "Seven Deadly Sins" have dogged human endeavors since ancient times! I would like to read about people who do the hard work of due diligence & rely on sound principles of investment. Will The Economist be running articles about how its actually done by them & their results?

Latest news seems to indicate that the Banks affected by the Madoff (pronounced Made-off, as with the money!) were not direct investors but lenders to institutions that were. Even so, they clearly need to review their relationships with such creditors in future: eg, questions about the clients' own risk-assessment procedures?